Assume that in a monopolistically competitive industry, firms are earning economic profit. Multiple Choice attract other firms to enter the industry, causing the existing firms' profits to shrink. reduce the excess capacity in the industry as firms expand production. make the industry allocatively efficient as each firm seeks to maintain its profits. cause firms to standardize their product to limit the degree of competition.

Question

Lilliana Bradshaw

Business

17 August, 22:32

Assume that in a monopolistically competitive industry, firms are earning economic profit. Multiple Choice attract other firms to enter the industry, causing the existing firms' profits to shrink. reduce the excess capacity in the industry as firms expand production. make the industry allocatively efficient as each firm seeks to maintain its profits. cause firms to standardize their product to limit the degree of competition.

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Phoenix Lara · Answer 1

The correct answer is: attract other firms causing a decline in the profit.

Explanation:

A monopolistic firm is a price maker. Unlike a perfectly competitive firm, it can earn positive profits in the long run. When a firm is earning profits in the long run, it attracts other firms to join the market.

When new firms enter the market it causes an increase in the supply. With a rightward shift in the supply curve, the price level declines. This causes profit to decline.